Things That Need Your Attention Before Purchasing an Endowment Plan
Published On Jul 23, 2021 6:51 PM By InsuranceDekho
Table of Contents
Endowment plan is basically a life insurance policy which also helps the policyholder to inculcate saving habits as it requires the person to pay specific premium amount over a particular period of time, so that he/she can receive a lump sum amount at the end of the maturity period (if the person survives).
It is a good decision for the risk averse individuals to invest in this plan. The policyholder can receive a lump sum amount after a particular policy period by paying a fixed premium amount from their income, in the form of savings.
If you are a person who spends a lot on the purchases that you don't even require, Here is your solution for savings . You can save a considerable amount of your income by investing it in this plan.
Things You Should Know About The Endowment Plan
Following are some key points which you should keep in mind while buying an endowment plan -
The plan pays a lump sum amount to the Policy on the maturity of the policy. He is entitled with the sum assured along with the accumulated bonus that resulted in investing a part of their premium in funds by the company(if any). This a unique feature of this plan as it guarantees benefit upon maturity. In the worst case, if the policyholder couldn't survive through the tenure of the policy, the sum assured is given to his/her nominees.
Mode of Premium Payment
A person has the liberty to choose the premium payment frequency as per his Choice. He/ she can opt for paying the premium monthly, bi-annually, annually. One-time payment of the entire amount is also accepted.
The endowment plan doesn't involve any risk for the policyholder. They offer good returns and are mostly free of risk as the company guarantees to pay the lump sum amount on the maturity of the tenure or on the demise of the policyholder. Either cases guarantee the payment of sum assured. The market fluctuations have least impact on the traditional endowment policy.
Under Section 80c of the Income Tax Act, 1961, a policyholder can claim deductions of tax up to 1,50,000 for the premiums paid for an endowment plan in a financial year. Section 10D of the act says that there cannot be any tax levied on the death benefit amount .
The endowment policy also offers a chance for the policyholder to buy additional benefits known as rider benefits. The riders include marriage endowment policy, education endowment policy, critical illness rider etc. The premium amount is increased for opting riders but they make the coverage scope flexible.
Who Should Go For an Endowment Plan?
Endowment plans promote disciplined savings. They give you a lump sum amount which helps you in fulfilling your long term goals like buying a car, building a house, sending your children abroad for education etc. So if you feel that you are bearing unnecessary expenses instead of saving for your future, you can happily start to save them regularly in the endowment plans.
If you are the breadwinner of your family and if your family members are financially dependent on you, your life needs to be secured. If anything unexpected happens to you, the financial burden piles upon your loved ones. Therefore, you can support them even after your death by taking up an endowment Policy. The life cover provided by the plan stand as shielded to your family .
Why Do You Need an Endowment Plan?
As discussed earlier, endowment plans are a great way to save your money which in future yields a bonus. Future cannot be predicted!
Endowment plan safeguards your family from financial crisis in case of an unfavorable event. The plan provides a lump sum amount which helps you in fulfilling your long term goals that demand a huge amount of money. Your savings remain unaffected by the fluctuations in the capital market which makes it safe and secure without any risk burden.
What Are The Right Circumstances For Buying an Endowment Plan?
As you have to pay premiums you should ensure that you have a steady flow of income. The premium amount is comparatively higher in the endowment plan than the Term Policy. Therefore to get a lump sum amount on maturity you require to pay a good amount of premium too. It is advisable to get the policy at an early age as investing for a longer period yields larger corpus.
It is advised to buy an Endowment plan which is simple and easy to understand. Once you have a wider look into the market, you can find various insurance companies offering the endowment plans at different rates. Always compare the rates, bonus offered by the companies and choose the best plan that meets your requirements and suits your financial condition.
Common MIstakes Made While Buying Endowment Plan
Is Endowment Plan an Ideal Investment for Me?
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.